A Turkish supplier extending credit to an Iraqi distributor needs to establish when payment becomes legally due and what protection remains if the distributor cannot pay. A strong sales relationship can conceal a weak recovery position, particularly where goods are resold before the supplier receives the price.
The Iraqi Civil Code governs the parties’ contractual obligations, including payment, breach and available remedies. The commercial agency framework may also apply to a distribution arrangement. Contract drafting in Iraq should address both the trading relationship and the legal basis for recovering unpaid amounts.
Establish the dealer obligation to pay
The agreement should identify the purchasing entity, the goods covered and the event that starts the payment period. Shipment, delivery, acceptance and resale are different events. Selecting one clearly prevents an internal customer collection problem from becoming an unintended condition of payment to the supplier.
If payment depends on resale, the supplier needs enforceable reporting and inspection rights. The contract should explain how sales to related parties, customer returns and discounted sales affect the amount payable.
A company owner’s assurance that an invoice will be paid is different from a personal guarantee. Where a guarantee is intended, identify the guarantor, obtain an appropriately executed instrument and define the obligations covered. A signature given only as company representative may bind the company without creating personal liability.
Determine the legal position of the stock
An inventory schedule can prove what was delivered and where it was stored. It does not, by itself, establish a proprietary right over the dealer’s assets. The legal position depends on the sale or consignment structure, identification of the goods and the effectiveness of any agreed protection under Iraqi law.
A supplier considering retention of title should examine its effect after resale, mixing or incorporation into other products. The contract also needs to address access to premises and lawful recovery. A right asserted in the contract should not be implemented through unilateral seizure where judicial action or third-party consent is required.
The stock provisions should cover:
- Identification of batches and ownership records.
- Permission to resell or transfer inventory.
- Risk of damage and the required insurance.
- Inspection rights and reporting frequency.
- Valuation of goods accepted back against debt.
Make security match the credit exposure
Security should be assessed by its legal effectiveness and likely recovery value. A guarantee from an entity with no accessible assets may offer limited practical protection. A pledge or other proposed security requires examination of ownership, existing encumbrances and the formalities necessary for effectiveness against third parties.
The supplier should also check whether the instrument covers future deliveries, extensions of time and revised balances. Changes to the underlying arrangement can create disputes about the continuing scope of a guarantee. Obtain any necessary confirmation when restructuring the debt.
Preserve the evidence needed for recovery
The Iraqi Evidence Law makes the quality of the documentary record central to a disputed claim. Keep signed orders, delivery acknowledgements, invoices, account reconciliations and correspondence about defects or deductions. Record whether a payment settles a particular invoice or merely reduces the general account.
For example, accepting returned products without recording their agreed credit value can leave both parties claiming different outstanding balances. A signed reconciliation should distinguish admitted debt, disputed charges and conditional credits.
Before suspending supply or terminating, review contractual notice requirements and the commercial agency implications. An overdue balance does not automatically resolve the separate consequences of ending the distribution relationship.
Etihad Law Firm advises Turkish suppliers on Iraqi commercial agency agreements, credit terms and debt recovery. Its commercial lawyers in Iraq can structure the payment and security documents together, so that a dealer’s commercial promises correspond to rights the supplier can substantiate and pursue.